What Does the Netflix Speed Rating Really Mean?

Do you fret about the actual speed of your broadband connection? If you do, Netflix (NASDAQ: NFLX  ) just released the first in what promises to be a series of real-world speed ratings.

The report ranks American Internet service providers by the speed by which an average Netflix user downloads video streams. Here's how the best of the best and worst of the worst shake out:

Service Provider

Average Streaming Speed in Megabits per Second

Google (NASDAQ: GOOGL  ) Fiber


Verizon (NYSE: VZ  ) FiOS


Comcast (NASDAQ: CMCSA  ) Cable


T-Mobile Wireless


Sprint (NYSE: S  ) Wireless


AT&T (NYSE: T  ) Wireless


No surprises at the top -- Google's gigabit fiber link in Kansas City rules the roost, with Verizon's high-speed fiber just behind. Fiber networks generally outperform cable, which trumps DSL, and all of the wired options are faster than wireless connections. Makes sense, right?

The weakest cable networks in this list, from regional carriers Frontier Communications (NASDAQ: FTR  ) and Windstream (NASDAQ: WIN  ) , sit just above the halfway mark of Google's top-of-the-line service, averaging roughly 1.5 megabits per second. Glorious full-speed 1080p HD streams are probably rare in these areas.

But the reasons behind the numbers are actually pretty interesting. Google's fiber-optic network supports speeds about 300 times faster than the reading reported by Netflix. In fact, all of these numbers fall way below the listed maximum speeds for each technology. As Netflix VP of content delivery, Ken Florance, explains: "The average performance is well below the peak performance due to a variety of factors including home Wi-Fi, a variety of devices, and a variety of encodes."

There are several bottlenecks in your Netflix video streams, and the bandwidth of your core Internet connection is probably not the narrowest one. Notably, wireless connections often deliver multiple megabits of download speed -- but the data feeds are probably tailored to a lower-quality encoding for smartphones and tablets. Why? To conserve those precious gigabytes of monthly download caps, for one. Small screens might also do better with a low-end data feed than your living room's 60-inch plasma screen would.

Other than the obvious mobile-to-wired dichotomy, we're probably looking at more of a demographic division than a technical one. Google's service is brand new and rolled out to high-interest neighborhoods first. Its customers are thus likely to be early adopters with above-average income, and they'll have pretty modern hardware across the board. Not so for Comcast's aging cable network or low-cost DSL customers.

Reading the report this way, investors might glean valuable information about subscriber quality. Entries near the top of the list seem to cull their subscribers from somewhat wealthier, more stable populations.

The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. Can Netflix fend off burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.

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